The management of Universal Technical Systems is contemplating the purchase of a new machine (at a...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
The management of Universal Technical Systems is contemplating the purchase of a new machine (at a cost of $200,000) that is capable of producing 192,000 units per year. The old machine has a book value of $80,000, but can be sold for $40,000. It is capable of producing 130,000 units per annum. The contribution margin per unit from operating the new machine is $0.25 and it is $0.20 per unit from operating the old machine. The useful life of the old machine was ten years when it was purchased two years ago. The useful life of the new machine is eight years. The new machine has a salvage value of $40,000 and the old machine's salvage value is zero. The old machine will require an overhaul at the end of two years from today at a cost of $20,000. The new machine will require an overhaul at the end of the fourth year at a cost of $16,000. The firm's cut off rate for investment decisions is ten per cent. Income taxes are to be ignored. REQUIRED: A. Determine if the old machine should be replaced. To receive credit, show all computations, describing your work legibly in detail. (11 marks) B. In what ways can accountants add value to the capital budgeting process? Write a brief essay expressing your views on the subject. (6 marks) The management of Universal Technical Systems is contemplating the purchase of a new machine (at a cost of $200,000) that is capable of producing 192,000 units per year. The old machine has a book value of $80,000, but can be sold for $40,000. It is capable of producing 130,000 units per annum. The contribution margin per unit from operating the new machine is $0.25 and it is $0.20 per unit from operating the old machine. The useful life of the old machine was ten years when it was purchased two years ago. The useful life of the new machine is eight years. The new machine has a salvage value of $40,000 and the old machine's salvage value is zero. The old machine will require an overhaul at the end of two years from today at a cost of $20,000. The new machine will require an overhaul at the end of the fourth year at a cost of $16,000. The firm's cut off rate for investment decisions is ten per cent. Income taxes are to be ignored. REQUIRED: A. Determine if the old machine should be replaced. To receive credit, show all computations, describing your work legibly in detail. (11 marks) B. In what ways can accountants add value to the capital budgeting process? Write a brief essay expressing your views on the subject. (6 marks)
Expert Answer:
Answer rating: 100% (QA)
Given data New Machine old Machine Cse life 8 yrs loye 2yrs Completed cost 2... View the full answer
Posted Date:
Students also viewed these finance questions
-
A consumer is contemplating the purchase of a new smart phone. A consumer magazine reports data on the major brands. Brand A has lifetime (TA), which is exponentially distributed with m = 0.2; and...
-
The management of Universal Manufacturing Company (Problem 5-4) likes to have its operators working 90% of the time. What must the assembly line arrival rate be in order for the operators to be as...
-
Kings Department Store is contemplating the purchase of a new machine at a cost of $22,802. The machine will provide $3,500 per year in cash flow for nine years. Kings has a cost of capital of 10...
-
At one time the Thames River in England supported an abundant community of fish. Pollution then destroyed all the fish in a 40-mile stretch near its mouth for a 45-year period beginning in 1915....
-
What reasons can you give for certain industries investing considerably larger proportions of their sales in advertising than other industries?
-
In mid-May, Aileen Macdonald, PA, received a phone call from one of her largest clients, a manufacturer. The client wanted to know more details about the impact that the GST would have on his 20X4...
-
Use the NBA PER data introduced in Problem 8.21 and consider the model found in Problem 8.22. After the outliers are removed it is not obvious that all of the terms in the model are important. Refine...
-
Debt versus Equity offering Size in the aggregate, debt offerings are much more common than equity offerings and typically much larger as well. Why?
-
Consider the following neural network with weights w for the edges and offset o for the nodes: W, 0.4 W=0.6 b=-0.3 Y3 W=2.0 b=0.0 b=0.4 Y5 W--0.7 W = -0.5 Y W-1.0 4 Assume that the outputs of nodes...
-
The graph below shows supply and demand curves for a new mp3 player accessory. a. What is the equilibrium price? b. Describe the relationship of supply and demand if the item were sold for $20. c....
-
Why would a company want to be transparent? What are the pros and cons? Discuss in detail and provide examples.
-
Acceptance is timely if it is made before an offer terminates. (True/False)
-
An adhesion contract will never be deemed unconscionable. (True/False)
-
Under the doctrine of strict liability, liability is imposed for reasons other than fault. (True/False)
-
An illegal contract is valid unless it is executory. (True/False)
-
All individualsregardless of their knowledge, skill, or intelligencemust exercise the same duty of care if they wish to avoid liability for negligence. (True/False)
-
According to entrepreneur and investor Mr. Raj Narula's presentation, which of the following is NOT one of the Ps of global selling: Presence Persistence Patience Potential
-
6 (a) Briefly develop a mathematical model of the behaviour of a copper-twisted pair cable (b) Derive the magnetic energy from: w given that: K + w, where the - - k symbols have their usual meaning...
-
What are the essential criteria used to distinguish a non-current asset from other assets?
-
For each of machines 1, 2 and 3 in Exercise 9.3, outline the effect on reported profits and on the balance sheet, as included in the published financial statements. Data from in Exercise 9.3 Costa...
-
Provide in your own words: a. an explanation of what depreciation is; b. an explanation of the net book value (NBV) of a partially depreciated non-current asset.
Study smarter with the SolutionInn App